April 27, 2017

The major stock market averages opened modestly higher but quickly faded. The Dow is down 34 pts and the SPX is down .1%.  Retailers, semiconductors, rail lines, and social media are trading up this morning. Energy, banks, and telecom carriers are down sharply. The VIX Index is down again today to trade under 11, signaling very little fear among traders. European markets are poised to close down about .5%. Commodities are mostly lower (gold -.3%, copper -1.1%, WTI crude oil -2.6%). It really looks like oil wants to fall toward $47/barrel in the near term. Bonds are modestly higher in price as yields edge lower. The 5-year Treasury yield is trading at 1.82% and the 10-year is trading at 2.29%. 

Treasury Secretary Steven Mnuchin said in a press conference yesterday that the Trump Administration’s tax reform proposal would “pay for itself.” Not only will the plan boost US economic growth, but it will close tax loopholes and cut some current deductions. The plan proposes to cut the corporate tax rate to 15% from 35%. Importantly, the rate for repatriation of foreign cash is yet to be determined. As for individuals, the plan cuts the number of tax brackets from 7 to 3. The brackets are 10%, 25% and 35%. The plan would double the standard deduction and do away with most itemized deductions (but retains deductions for mortgage interest and charitable donations). Finally, the plan would eliminate AMT and the estate tax. Although he said the plan will pay for itself, he did not specifically say it would be revenue-neutral for the government. 

Comcast (CMCSA) reported first quarter results that beat Wall Street forecasts. Revenue rose 9% y/y and earnings surged 26%, driven by a couple of successful films. In fact, revenue at the Universal unit surged 43%. In addition, Bloomberg asserts the company is “reversing a trend of cord-cutting.” Comcast added 32,000 new cable TV subscribers and in fact has added customers in five of the last six quarters. The stock is up 2.4% this morning. 

Dow Chemical (DOW) reported earnings that exceeded expectations, with total sales up 24% y/y. Excluding a major acquisition the company recently completed, sales rose 11%. The company saw improved demand for products pretty much across the board, including adhesives, chemicals, plastics, and infrastructure. The only business unit reporting weaker results was agricultural seeds, down 4.7%. So total sales volumes rose 4% (excluding acquisitions). Management said the merger with DuPont (DD) is likely to close in August. Once the two massive companies are combined, they will split into three separate companies focused on agriculture, materials science, and specialty products. Oddly, the stock is down 1.8% this morning. 

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